IEEJ：October 2015, All Rights Reserved.

The 421st Forum on Research Works, October 21, 2015
The Institute of Energy Economics, Japan (IEEJ)

Asia / World Energy Outlook 2015
— Analyses of oil pricing and climate change measures under new circumstances—

Summary

1. Introduction
In the Reference Scenario of IEEJ’s “Outlook”, crude oil prices (Real 2014 US$) are assumed todecrease from $105/bbl in 2014 to $75/bbl in 2020 before rising to $100/bbl by 2030. The
world primary energy consumption in the Reference Scenario increases at an annual rate of1.3%, reaching almost 19,000 Mtoe by the year 2040. The emerging countries in Asia areleading the demand growth. While the use of renewables and nuclear expands, oil keeps thelargest share in 2040, followed by natural gas and coal. The world will remain heavily
dependent on fossil fuels for 78% of its primary energy consumption. The energy related
CO2 emissions will continue to increase accordingly and reach 42.7 Gt-CO2 by 2040.

Having experienced an acute drop since the end of 2014, the increasing uncertainties
regarding future crude oil prices will continue to influence the world’s energy markets. On
the other hand, with the approaching COP21 at the end of the year, there are increasing
interests in the future of the global climate change measures and their impacts on the energy
supply-demand structure.

This year’s “Outlook” analyses a Reference Scenario, an Advanced Technologies Scenario and aLower Price Scenario. In the Advanced Technologies Scenario, the penetration of energy saving
and low-carbon technologies is promoted as much as possible. In the Lower Price Scenario,
the same technologies as in the Advanced Technologies Scenario are assumed while thedevelopment of unconventional resources is further promoted. We also studied the climatechange issues from the point of view of minimizing the total cost for society.

2. Meaning of Low Energy PricesLower prices have an overall positive effect on the global economy. It is important tonote, however, that there are distinctive shades of lights and shadows.

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The dissemination of energy efficiency improvement technologies and measures, thepromotion of unconventional resources development and the wider use of non-fossil fuels
may further loosen the supply/demand balance for fossil fuels and result in a continued
trend for lower energy prices. Crude oil prices in 2030, in the Reference Scenario, areexpected to be about $100/bbl while in the Lower Price Scenario they remain at $75/bbl.

In the Lower Price Scenario, it is assumed that energy savings will be pursued as stringently
as in the Advanced Technologies Scenario. Consequently, global oil production will be limited
to an increase of 7.7 Mb/d, reaching 96.5 Mb/d in 2030. As the Lower Price Scenario also
assumes large increases in unconventional oil production, especially in North America, theincrease in oil production from the Middle East will be limited to only 1.0 Mb/d while
Russian production will decrease by 0.8 Mb/d.

Lower energy prices have positive economic effects on energy importing countries. Thesebenefits include lower domestic energy costs and an improved balance of trade forimported energies. Exporting countries, on the other hand, will be unable to avoid damages
to their economies if their current industrial structures are kept unchanged. Middle East &North Africa (MENA) region and Russia may suffer from downward pressure on economic
growth by 3.1% and 1.3% in 2030, respectively. It is important for these countries to convert
their economic structures into more diversified and sophisticated ones. In the Lower Price
Scenario, the global economy will benefit and grow by more than 1.9% in 2030, withconcerns for countries and regions less positively affected.

In addition to focusing on the issues of overall price levels, some attention should bedevoted to the negative effects caused by price fluctuations and instability. Not only supply
and demand factors but financial ones do amplify price swings. As short-term pricefluctuations slow down the development of new supply capacities, there will be a risk ofmismatching future demand and supply, and causing further price hikes.

For both consuming and producing countries, neither extremely high/low prices nor acutedestabilization of prices are welcome. Both sides need to strive for diversification of energy
and for sophistication of their industry and economy in order to maintain a course ofsustainable growth. Energy industries and companies also need to keep a portfolio ofproject expansions from a strategic point of view; they need to strengthen their ability toaddress price swings and business risks.

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3. Addressing the Climate Change issues
Even with the maximum use of technologies, meeting the 450 ppm target is difficult.
A balanced approach that uses the remaining time wisely is required, bearing in mind
that promising technologies will become available and adaptation should also beaddressed.
In the Reference Scenario, world energy related CO2 emissions will reach 45.9 Gt by 2050, an
increase of 39% from current levels. The Advanced Technologies Scenario assumes themaximum penetration of low-carbon technologies currently available and acceptable tosociety. If the scenario also includes carbon capture and storage (CCS), the emissions would
be lowered to 23.3 Gt or 29% below the 2013 levels. These conditions are insufficient toreach the goal of 50% of current levels.

Based on the respective ‘Intended Nationally Determined Contributions’ (INDC) of eight
major countries (equivalent to 65% of global total emission in 2010), the GHG emissions in2030 for those countries are estimated to be closer to those of the Reference Scenario thanthose of the Advanced Technologies Scenario. The INDC of USA and Japan are closer to theAdvanced Technologies Scenario, while that of EU is in between the Reference Scenario and theAdvanced Technologies Scenario. China, on the other hand, is closer to the Reference Scenario
while India is bigger than in the Reference Scenario. It would be advisable for countries tomake efforts equivalent to those assumed in the Advanced Technologies Scenario. This isespecially true for the emerging economies that need to strengthen their efforts effectively.

The results of the Reference Scenario correspond to a level of GHG concentration in theatmosphere in 2100 in the range of 760-860 ppm (CO2-eq.), with an average temperature risefrom pre-industrial levels reaching between 2.8-4.0°C the same year. On the other hand, theAdvanced Technologies Scenario + CCS, is comparable to GHG concentrations in 2100 of 540600 ppm (CO2-eq.), with an average rise in temperature between 1.7 and 2.4°C. This is lower
than 2.5°C and possibly lower than 2°C by 2100. When combined with adaptation measures,
this scenario of mitigation measures can well become an option close enough to reduce
global CO2 emission to 50% of the 2013 level by 2050 and on the path to reach close to zeroby 2100.

Setting the Reference Scenario as the base and promoting mitigation efforts such as CO2emission reduction would undeniably decrease the adaptation and damage costs while
increasing the mitigation cost. In the short to medium term, the influence of the adaptationand damage costs are smaller than that of mitigation cost. Beyond 2050, however, theirinfluences will become much bigger. Although the uncertainty of cost estimates remains
enormous, there must be a point where the total cost (the sum of mitigation, adaptation,IEEJ：October 2015, All Rights Reserved.

and damage costs) is minimized. That point must exist somewhere between the Reference
Scenario and a scenario of “50% reduction of emissions by 2050”. As there is a trade-offamong the three costs, it is impossible to reduce all three at the same time. It would be
realistic, however, to expect a balance among the three, while minimizing the total cost.
Facing the threat from climate change, ambitious GHG reduction will continue to berequired far into the future. And yet, for now, it would be more practical to aim at GHG
concentrations in the 500-550 ppm (CO2-eq.) range, closer to the results of the Advanced
Technologies Scenario. In the meantime, technologies should be developed so that energy
savings and low-carbon technologies will become available at lower costs. In the mid tolong-term, innovative technologies such as Carbon Capture and Usage (CCU), especiallyartificial photosynthesis, next generation nuclear, space photovoltaic, fuel cell and other
innovative technologies development need to be promoted. All technologies should be
developed through a global network within a collaborative approach.

Contact: report@tky.ieej.or.jp